Income-tax-crunch time: 10 timely things to know
As the income-tax filing season goes into full swing, here are some of the mistakes and last-minute tips worth knowing, along with resources for filing your return.
- Many taxpayers can qualify to file their returns at no cost. Some can receive local in-person help
- While most tax-shaving actions expired at the end of last year, a few actionable tips remain
- Tax-refund fraud could be a big theme this filing season, but many people aren't taking precautions
The annual tax-return filing season is in full swing, with returns due April 18 and automatic extensions available that would give you until mid-October, if you need more time. Here are 10 assorted items to keep in mind about the filing season, for which the IRS expects about 150 million individual returns nationally and nearly 3 million from Arizona:
What messes people up
When it comes to taxes, plenty of things do. But the Earned Income Tax Credit deserves special attention as a source of confusion and mistakes, according to the Internal Revenue Service. The basic rule is that if you were employed last year and earned $53,267 or less, you may qualify for this credit or dollar-for-dollar reduction in tax liability. The average credit last year in Arizona was $2,576 and 567,000 households received money, so it's significant for a lot of lower-income people.
When a person's income or family situation changes, it often affects eligibility for the credit, so check the rules. You might qualify for 2015 even if you didn't in prior years, the IRS said in a recent alert.
Another note: You must file a federal tax return and claim the credit to receive it, even if you aren't otherwise required to file. The IRS has an EITC calculation tool under the "credits and deductions" section at irs.gov. IRS Publication 596 discusses the credit in detail and, like other federal tax publications, can be viewed on irs.gov.
Arizona in the game, too
The Arizona Department of Revenue started to accept state income-tax returns Jan. 19, the same day the IRS marked the official start of the federal filing season. Arizona, like the IRS, offers tax forms that you may fill in online, if you prepare your own returns. Go to azdor.gov for more information.
Moderate-income individuals can take advantage of free electronic filing from tax software companies through the Free File Alliance, which is available to people with income below $62,000. To utilize this program including on Arizona returns, you must start by using the link on the Department of Revenue's website. A larger list of tax-software companies participate in the program for federal returns at irs.gov/FreeFile, but not all these companies allow the free filing of state returns.
Free in-person help available
Several programs provide free tax-return assistance for Valley residents lacking computers or those seeking in-person help. This includes the AARP Tax-Aide program (aarp.org/taxaide), which will open its doors Feb. 1 at two dozen sites around the Phoenix metro area. Participating sites include the Devonshire Senior Center, the Sunnyslope Community Center and South Mountain Community College (all in Phoenix), the Glendale Adult Center, the Granite Reef Senior Center in Scottsdale, Chandler Public Library and the Mesa Active Adult Center.
AARP focuses on serving moderate-income people over 50 but younger people are welcome, too. The program focuses on preparing relatively uncomplicated returns.
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What, me worry?
More Americans have become aware of tax-fraud risk — the danger that someone will file a fake return in your name to steal your refund — but most people don't seem to be taking steps to reduce the threat. For example, only 6 percent of roughly 1,000 people surveyed recently by credit-bureau Experian plan to file their returns electronically on a computer with up-to-date antivirus software. Only 12 percent plan to check their credit reports first — if your report shows unauthorized activity, that could be a sign your identity has been stolen, Experian said.
One of the best steps to thwart tax thieves involves filing your tax return before somebody else gets a chance to do so. Unfortunately, that's difficult to do until you receive all needed W-2, 1099 and other tax documents, which are still arriving in the mail. If you're using a paid tax-return preparer, check up on that person as best you can — some fraud is committed in this manner.
As another precaution, beware phone calls or email messages from people claiming to represent the IRS and seeking personal information such as bank-accounts or Social Security numbers. Just last week, a reader called me to say he just fell for this ploy — and gave his Social Security number to someone claiming to be from the IRS. If nothing else, remember that the IRS doesn't initiate contacts with taxpayers through the phone or email.
Another layer of security
The IRS invites people who have fallen victim to tax-refund fraud to apply for an Identity Protection Personal Identification Number, or IP PIN. One interesting finding from the Experian survey was that only about one in three victims said they've taken this additional step to prevent the misuse of their Social Security number on fraudulent returns. A lot of people don't even know about it.
If you haven't yet been victimized, you generally can't get an IP PIN, even if you want extra security. However, the IRS is making them available through a pilot program to people who have mailed returns from three fraud hotbeds — Florida, Georgia and the District of Columbia. Arizona has had some high ID-theft readings in recent years, but we're apparently not at the top for tax fraud.
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Why February is important
No, it's not because of Valentine's Day. February is the time when all W-2 and 1099 forms should have arrived in the mail. If you're still missing something, it's about time to initiate action.
First, contact your employer if you haven't received your W-2 form or if it's incorrect. If you efforts didn't succeed and it's after Feb. 14, you can ask the IRS to initiate a Form W-2 complaint. You may call the agency at 1-800-829-1040 or visit a local IRS office in person. The IRS will send the employer a letter requesting that the company furnish a correct Form W-2 within 10 days.
Where to go in person
Incidentally, the IRS operates eight Arizona offices, including three in the Valley at 7350 W. Camino San Xavier in Glendale (623-643-0399), 1818 E. Southern Ave in Mesa (480-503-7355) and 4041 N. Central Ave. in Phoenix (602-636-9199). All three Valley offices are open Monday through Friday from 8:30 a.m. to 4:30 p.m.
The two Valley offices of the Arizona Department of Revenue (602-255-3381) are located at 1840 S. Mesa Dr. in Mesa and 1600 W. Monroe St. in Phoenix. Both are open 8 a.m. to 5 p.m.
Extenders that got extended
Last last year, Congress permanently revived several federal tax rules that had expired. These include a special "above the line," or nonitemized, deduction available to teachers who made unreimbursed classroom expenses. Another gives individual taxpayers who itemize the option of deducting state and local sales taxes instead of state/local income taxes. That could be handy for Arizonans who bought a car or made other large purchases last year, but the rule mainly benefits people who live in places where there's no state income tax.
Another rule that was permanently extended could help affluent seniors and the charities they favor. It allows people 70 1/2 and older to withdraw up to $100,000 a year from IRAs or individual retirement accounts on a tax-free basis provided they transfer the money to a charity. Otherwise, they would need to make a withdrawal, declare it as taxable income, then make charitable donations separately.
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Really last-minute tax tips
Most tax-shaving opportunities for 2015 expired at the end of last year, but there are a few exceptions. On the federal level, for example, many people can still contribute money to an IRA and deduct the money on their 2015 returns. But before you do this, make sure you qualify for this deduction — higher-income people with retirement-plan coverage at work generally don't.
On Arizona returns, you still have until April 15 to donate to a private-school tuition organization or pay public-school extracurricular fees and potentially receive a state-tax credit. Read the section on school-tax credits on the website of the Arizona Department of Revenue, azdor.gov, for details.
In case you were wondering
If you didn't win the Powerball jackpot but want to try your luck betting on the Super Bowl, you're not alone. The American Gaming Association estimates Americans will bet $4.2 billion on the upcoming Super Bowl pitting the Denver Broncos against the Carolina Panthers. That amount would represent an increase of about 8 percent over last year. The association estimates the overwhelming majority of those bets, 97 percent, will be wagered illegally.
Technically, all gambling winnings are taxable. If you bet in a legal venue in Las Vegas or elsewhere, keep receipts of the amounts you wagered. You may deduct losses as long as they don't exceed the amount of your winnings.
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Reach the reporter at russ.wiles@arizonarepublic.com or 602-444-8616.